FIX - Corporate Spinoff

q_lurker
q_lurker SuperUser ✭✭✭✭✭
edited November 20 in Investments (Windows)
The current (R29.9 through R36.38) approach for the Corporate Spinoff action is to use three types of transactions:
  • RtrnCapX
  • MiscIncX
  • Add Shares
This approach has problems.  Principally, it only works accurately for single-lot holdings of the parent company.
  1. The RtrnCapX computes the total reduction in basis for the parent company correctly, but RtrnCap transactions currently distribute that basis adjustment to multiple lots in proportion to the number of shares.  For this situation, the basis needs to be distributed in proportion to each lot's contribution to the total basis.  
  2. This MiscIncX transaction is not needed, is confusing as to purpose, and uses a reserved category (_UnrlzdGain) in an unconventional manner.
  3. While Quicken promotes the idea that the fair market values entered into the Corporate Spinoff action are end-of-day values, that is not the approach taken in all cases by all stakeholders (users, brokerages, and companies).  While Quicken chooses to enter the provided values into the price-history records as that day's closing values, those entries may change as other data is later downloaded.  Out of all that, the Investment performance report (and other related AAR calculations) are correct IF and ONLY IF those closing values remain unchanged as entered in the Corporate Spinoff prompting.  
My suggestions for the fix.

a)  Modify the RtrnCap transaction to have a choice on the distribution approach.
    o Distribute amount per share
    o Distribute amount per basis
The normal default would be to distribute per share.  For the Corporate Spinoff action, Distribute per basis would be selected.  The computation would then be to add the basis of all lots and allocate the Amount field of the RtrnCap to each lot proportionately.
  
b)  The MiscInc transaction is not required.  The RtrnCap transaction already includes a Mkt Value field, the the user can specify that the RtrnCap is reducing basis by one amount and Market Value by a different amount.  That Mkt Value field already correctly flows to the Investment Performance Report (and other related AAR calculations) as a "return".  If the Corporate Spinoff action would place the computed Market Value of the Spinoff into that RtrnCapX Mkt Value field, the MiscIncX transaction can be eliminated.  

c)  The only fix I can offer to the closing price changing is an advisory note to the user somewhere, somehow, that if the closing prices are changed from the original values, the user should adjust the RtrnCap Market Value entry accordingly (to match the end-of-day market value of the added (spinoff) shares.  Perhaps a "Reminder" transaction -- "If the closing price of ABC is different than $XX.XX, adjust the RtrnCapX Mkt Value accordingly".  Help documentation would clarify that to Mkt Value field needs to be Shares Added x closing price.  This reminder would only be a consequence of the Corporate Spinoff action.  

Be aware that what is driving this point (c) issue is the decision that Add Shares and Remove Shares transactions would flow to the AAR calculations using only the closing price value available for that date.  There is no provision (for example) that the shares are added with a mid-day or average value then close the day at a different value.  Nor can shares be removed as at one valuation then added back in that same day at a lesser valuation.  I am assuming that decision is cast in stone at this point.

Using the IBM - KD spinoff as an example the resulting transactions would look something like this:



Note the two values associated with the highlighted RtrnCapX transaction - 230.07 as the amount (the basis reduction) and 263.80 as the Market Value equaling the market value of the KD shares spun off that date.

The Investment Performance Report then comes out as 



The 263.80 Market value from the RtrnCapX appears as a return balancing the Added Investment values from the 10 shares of KD added the same date.  (Why the values come in each short by a penny is beyond me, but effectively they are in this case equal to shares * 26.38.)

A Portfolio view would appear as shown here:

where the correct IBM basis values should be 3832.68 and 1437.25.  The basis totals and the KD basis values are correct as is.  

The new RtrnCap box would look something like:

 

Labeling is certainly open for clarification.

Thanks for your consideration of this idea / correction / bug fix.  As it appears some significant spinoffs may be coming (GE for example), timeliness on this may be important. 
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